Kenya eyes $1.9b emergency funding to ease economic distress

Kenya’s National Treasury is seeking $1.9 billion in emergency funding from the Bretton Woods institutions and a consortium of foreign commercial banks to bolster its battered financial position and support the shilling exchange rate, which has fallen to a record low – above Ksh130 against the US dollar.

The financing, expected within the next eight weeks, is designed to shore up foreign exchange reserves, which have also fallen below the statutory threshold of four months of import cover, and ease a biting shortage of the greenback that has thrown dollar-dependent businesses into an operational crisis.

Haron Sirma, a director in charge of debt management at the National Treasury, said that the new loans comprise $1 billion from the World Bank, which is expected in May; $300 million from the International Monetary Fund (IMF), expected in June, and $600 million from a syndicate of foreign commercial banks in June.

The commercial banks are Citibank, Standard Chartered Bank, Stanbic bank and South Africa’s RMB Holdings Ltd, previously known as Rand Merchant Bank Holdings.

‘No cause to panic’

“All is well, no cause to panic,” said Sirma. “The current challenges in the global financial markets have exacerbated the liquidity challenges in the global financial markets on revenues and borrowing. We consider this temporary, with pressure easing in the coming weeks.”

The declining forex reserves have forced Kenya to change the system through which it purchases oil, from the monthly open tender system (OTS) to long-term government-to-government contracts with Gulf states.

The government hopes to preserve $500 million every month as the oil will be procured on a six-month credit deal where three oil marketers (Gulf Energy, Galana Oil and Oryx Energies) will offload the product to the market in local currencies.

The first batch of oil under the deal landed at the Mombasa port this week from the United Arab Emirates.

“Debt maturities will decline significantly over the next eight weeks; the month of April will be a revenue boom as corporates declare dividends and taxes, and large external inflows from Bretton Woods,” added Sirma.

Ignored securities market

Kenyan commercial banks have starved the government of funding, snubbing treasury bills and bonds in concerns over the government’s deteriorating cashflow position and the weakening prospects of debt sustainability.

According to rating agency Fitch, Kenya faces elevated external debt service obligations of $3 billion this year and $4.8 billion in 2024 as official foreign exchange reserves decline to their lowest in seven years.

In February, another global rating agency, Standard & Poor’s, downgraded the country’s credit status – from stable to negative – dealing a major blow to foreign direct investment and the government’s efforts of accessing cheaper funds from international markets.

According to Standard &Poor’s, the negative outlook reflects heightened risks to Kenya’s debt servicing capacity due to constrained international market access and recent undersubscription of domestic bond issuances.

Inflation in March remained elevated at 9.2 percent from high food, fuel and electricity prices.

A market perception survey by the central bank in March showed that businesses are concerned about the high cost of living, weakening of the domestic currency, expensive imports and shortage of dollar.

Kenya’s public debt is estimated at more than Ksh9 trillion ($67.66 billion) against a debt ceiling of Ksh10 trillion ($75.18 billion).

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